stay curious

1/28/2015

the treatment of Jeffrey Sterling

Jeffrey Sterling has been in the news recently due to the completion of the trial phase of his prosecution by the Obama Administration under the Espionage Act. That in itself is noteworthy since so few Americans have ever been tried under that particular piece of legislation born out of the war preparations for what was supposed to have been the great war. But like the Selective Service System and the USA PATRIOT Act and the FISA Amendments Act and all the rest of the national security state, these things have a tendency of becoming permanent.

WASHINGTON — Jeffrey A. Sterling, a former Central Intelligence Agency officer, was convicted of espionage Monday on charges that he told a reporter for The New York Times about a secret operation to disrupt Iran’s nuclear program.

Now, that's from the paper whose reporter himself published the information in question. Sterling wasn't found guilty of espionage. He was found guilty of whistleblowing. And of course, even that is circumstantial. Remember how hard it is to prosecute the financial fraudsters and war criminals because we don't have airtight cases against them? Well, when the government actually wants to, it prosecutes people on rather flimsy evidence. If you're interested in the details of the proceedings, Marcy Wheeler has been following this in depth.

What I want to do is tell a little more about him and government employment. Something I haven't seen in the corporate media at all is anything that would humanize him or tell an actual story about him other than ooh, spy convicted. (In fact, if an American really was spying on America for America's Enemies, why hasn't he been tried and hanged for treason?).

You see, Sterling is a graduate of Washington University in Saint Louis, my alma mater. He grew up in Missouri, Cape Girardeau, not Virginia, where he's being tried. He received a law degree in 1992. He worked for the public defenders office. And he had a respected career in government service until something happened. Was it incompetence? Nope. Did he steal something? Nope. Did he sexually harass a colleague? Nope.

Sterling is a black man. Now that shouldn't matter. But it does still matter in our society. When he filed a discrimination suit against the CIA, all of a sudden, the government started not liking him. That's the real story here. An employee tried to exercise their right to anti-discrimination, and the government responded by pursuing that employee aggressively for alleged leaking of classified information - a pursuit not sought with the same vigor against others who might also have been the source of the leak.

And, oh, what was this leak? Yeah, well, the government doesn't want you to ask. See, they classified materials in the discrimination proceedings and the leak proceedings. Because, you know, public information doesn't belong to the public. It belongs to the Fearless Leaders of our great country.

That's called retaliation when a private sector employee does it. But when the government does it, it's called national security. Literally, it is a secret of the state. Just another tidbit for MMTers to consider. How, exactly, will employee rights be guaranteed by a government that is so secretive, vindictive, and authoritarian that it prosecutes someone like Jeffrey Sterling?

1/19/2015

Current Limits of Modern Money (MMT)

Two years where nothing has happened.

That's sort of what it feels like, a brief microcosm of Francis Fukuyama's End of History. What was silly about that was the permanence of the sentiment, this notion that This Time Is Different, but there's a lot of truth to temporary periods of stagnation. It's not that there aren't things happening at an individual level, it's just that the details are all that differ. The same soup warmed over just keeps happening, like we're stuck in a holding pattern waiting for reality to do its thing to unsustainable arrangements.

I haven't even logged into the blog in a while, and I was surprised to find that according to Google's analytics, they send traffic here from time to time, my little personal journal that hasn't seen a new article since before Stephen Colbert decided to go get a real job. 145 links last month? Wow.

So you're reading a bit of an intro or disclaimer I normally don't provide on my thoughts here just in case my little ramblings get picked up by the Google Magic Machine and transported across spacetime. Especially given the recent case study of Marco Ament whereby legitimate and thoughtful criticism was twisted into a variety of things it was not.
I don't embrace the conservative takeover of America, the radical right, whatever we want to call it. I believe in market-based economics, not fascism (or communism, for that matter). I'm centrist for a Millennial, but I'm pretty far to the 'left' as far as the general American public goes.

However, I disagree with some of the ways that leftist thought leaders, we might say, have been trying to counter the changes in American political economy over the past half century generally and the past couple decades in particular. What I see is a blindness, an ignorance, almost willfully so, to cast aside or under appreciate how some ideas can be so easily twisted to serve the authoritarian purposes that have been undermining Constitutional governance and creating a dangerously high level of concentration of wealth and power. MLK laid out the clear connection of class that still hasn't fully permeated upper middle class, educated thinking, in tying together racism, militarism, and economic injustice. It's one of the reasons I think of this on MLK weekend. Selma - seriously, go see the movie if you at all have any interest in movies - is so far away, yet so close to home. The two-tiered justice system isn't a relic of the past. Young black men are victims of systemic targeting by our legal system today.

If anything, things are trending worse again, not better, since the advances of the 1950s and 1960s. Highly educated liberals - with the fancy degrees and certifications of higher education serving as impressive gate keepers - in the Democratic party control our nation's major cities, and that is ground zero of much of the oppression and injustice and preventable suffering in contemporary America. It should be neither controversial nor shocking to express such a sentiment, but yet, sometimes it is. The Republicans are not the problem. Conservatives are not the problem. Racists are not the problem. Evangelical Christians are not the problem. Libertarians are not the problem. Gold bugs are not the problem.

We all are the problem. It is an American problem we face, a time to answer again for our era what exactly we mean by created equal, by a more perfect union, by liberty and justice for all.

There's also an interesting personal angle to me for MMT. Growing up in KC, where UMKC hosts the Center for Full Employment and Price Stability, MMT has a bit of a home town feel to it. And there's the interesting related but different approach between business and economics. The business student is interested in what works, in implementation, in how to put things in practice. It is focused and driven by results, by outcomes, by the meaning of what is accomplished. But MMT comes out of the more academic side of theorizing and a bit of the math and physics envy that plagues the social sciences generally and economics in particular. That's a personal connection for me especially since one of Professor Randy Wray's major influences was Professor Hyman Minsky, a long time academic in the economics department at Washington University in St. Louis. One of my most memorable interactions with econ professors was at Washington University when Professor Murray Weidenbaum, who passed away this spring, spoke in our Honors in Management seminar about government regulation and so forth. A business student asked him what he thought of one of the big contemporary issues of the day - Enron - and the gist of his answer was that mistakes probably were made but it didn't amount to fraud. That unwillingness to call a spade a spade, to name crime as such, caught my attention then and I continue to see it today, across a wide swath of political rhetoric and intellectual frameworks. It's almost like explaining the past couple decades as a pedestrian crime wave committed by a bunch of run-of-the-mill criminals rather than some complicated phenomenon by SuperSmart People implicates everyone whose reputation is tied up in our system, from corporate executives to Democratic politicians to tenured professors to police chiefs to prosecutors to judges.

Saint Louis County Prosecutor Bob McCulloch isn't some outstate Republican with no education beyond high school, nor is he some crazy right-wing economist or pundit. He's a white upper middle class Democrat with an advanced degree. And what is notable about his conduct is not that it was outside the mainstream. Rather, what is notable is that he is very representative of the two-tiered justice system. Hard prosecution of petty crimes allegedly committed by people in poverty combined with light prosecution of serious crimes allegedly committed by armed government employees, big time financial fraudsters, and so forth. And lest anyone in the heart of the problem, the NYC-DC nexus, think this is a flyover state problem, that canard is unfortunately put to rest quite easily.

What follows is very specifically my perspective on current limitations in modern money. It is very specifically framed that way because I don't think the whole thing is simply bunk, nor do I think it is impossible to address these matters. Rather, what I am pointing out is that this perspective is currently limited, as if admiring a beautiful landscape by holding a hand over one eye.
So far I have been rather personal and vague. One of the core challenges of discussing modern money in detail for critical analysis is that the details differ from one proponent to the next. There is no periodic table of the elements or constant speed of light to serve as base and reference point.

So I'm going to summarize four key points of MMT as I would describe and synthesize them:

1) MMT observes that good monetary policy must utilize a buffer stock policy. In other words, there must be some price anchor attached to a fiat currency issued by a sovereign government. The government can of course create as many currency units as it wants, but this must be checked by that price anchor. Some of the most common such buffer stocks are gold, unemployment, and full employment (AKA ELR, AKA JG - a job guarantee, the acronym I'll use from here on out for simplicity sake). But the key here is that just about anything can be argued to serve this purpose in theory, from silver and copper to wheat and soybeans.

2) MMT observes that, since we have to choose a buffer stock, we should choose the best one. The best one is full employment (JG).

3) MMT observes that not only does JG serve a monetary function, it also solves non-monetary problems. Unemployment, homelessness, poverty, inadequate healthcare, skill deficiencies, etc. Giving people a job gives people access to overcoming these barriers. In short, work in the formal economy is valuable in and of itself, not just for the income such employment provides.

4) MMT observes, at least in some circles, that balanced budgets are inherently bad. In other words, it's not just that the government can run a deficit, but more than that, that the government ought to run a deficit. Not over short or temporary periods of time, but forever. I will generally refer to this as net deficit spending (i.e., where spending - the creation of currency units - exceeds taxation - the destruction of currency units).

What is immediately obvious and troublesome to me is that points 1 and 2 are closely linked. There is a clear line of thought connecting those two claims. But 3 and 4 are independent. This is not an abstract or theoretical problem. One of the major issues in the labor market is that there are millions upon millions of jobs that have low wages and poor working conditions. We also know that Americans work far more than our peers in other industrialized nations. And finally, we know that single-income households (breadwinners) are more stable than households where all adults must work. Meanwhile on item 4, one of the major issues in government budgeting is that we are already running massive deficits, right now. The Reagan-Bush-Obama era, in fact, is defined in some ways by consistently spending far more dollars than are raised through taxation. In a very real sense, MMT seems easily used to augment the authoritarianism, not reject it.

This post is also titled
current limits because it is not that MMT provides poor responses to critiques
of the JG so much as it refuses to consider some kinds of criticism at all. For
example, Professor Wray explained his thinking in the following
manner:

“I’m not going to say
more about these final two arguments against full employment as I’m convinced
both are fallacious, and because neither of these critiques offers a
price-stabilizing anchor for the currency in place of the JG/ELR.”

In other words, MMT does
not explain why philosophical and practical objections to JG are incorrect.
Rather, the theory handles disagreement by defining it as fallacious and
lacking a price anchor. In other words, MMT is aimed at people operating within the mainstream of economics, those that accept point 1 above. So far, it does not appear interested in perspectives that are outside of this mainstream view.

Below, I present three
Ps, if you will, that offer different perspectives or insights into the
problems posed by JG. In summary, they are philosophical, practical, and
political.

On the philosophical
front, JG theorizes that idleness is bad. It asserts, by definition, that time
spent employed in the formal economy is necessarily better than time spent
doing something else. On the practical front, I present a comparison between
the actual functioning of two parts of the government – the Social Security
Administration and the National Security State. If one views the situation from
a different perspective, it appears clear that social insurance, in practice,
works much better than direct employment. Finally, there is a political point
worth considering that social insurance has proven its staying power within the
confines of the acceptable range of policy options available in US culture. A
JG, in contrast, has never been tried. The most expansive programs we have,
like the WPA or the Vietnam War, have either been temporary or controversial (or
both).

For me, the unwillingness
to defend philosophical objections to JG is the most powerful indictment of the
current limitations of theory built around modern money. It demonstrates either
a tremendous lack of understanding about the core assumptions and values that
one brings to political economy, or, a lack of intellectual seriousness and rigor.
Formal employment is inherently authoritarian. That’s the point – one person
hires another person to do what he or she says to do. This can work very well
in a system of equality and rule of law where employees and employers form
consenting agreements to produce a valuable outcome.

However, the inherent
dangers of centralized power should not be taken lightly. Slavery, indentured
servitude, physically abusive working conditions (“sweatshop labor”), theft,
discrimination, harassment, and child labor are some of the more commonly
understood problems of too much unchecked authority. It is easy to rationalize
away the oppressive nature of work as something that is in the past. But it’s
not. More human beings are enslaved today than in the 19th century,
from domestic servants to children caught up in sex trafficking.

The authoritarianism of
the workplace is prevalent in less extreme cases, too. There is a direct link
between stress of overworked employees and mental and physical health problems.
Indeed, the trauma inflicted by workplaces where employees have little power is
eerily reminiscent of the description that Wray himself offers of the problems
of unemployment:

“…divorce, deteriorating
physical and mental health, abuse of children and spouses, gang activity, and
crime.”

How the JG works isn’t
the only issue. There is also the matter of what the JG will accomplish. It is
a rather dull and depressing view of humanity to posit that human beings are
only properly motivated and organized when employed. Formal employment can be
good. That does not mean it is necessarily good.

Indeed, the exact
opposite approach would seem most in line with human progress and civilization.
It is the productivity of agriculture and commerce and so forth over the years
that allowed people to pursue higher callings in the arts and sciences. Our
curiosity and creativity as a species requires rest and idleness and leisure
and spontaneity and failure; the very opposite traits maximized by employment-based
resource allocation. It is better for the government to pay someone to pursue
their own hobby than for the government to pay someone to do work that is of
little interest or value. The range of activities that humans engage in outside
of formal employment is as vast as the imagination, from very obvious pursuits
like parenting and volunteering and civic engagement to more particular
passions such as a faith community or visiting relatives or painting or singing
in a choir or going hiking or running for school board or coaching a little
league team or exploring the stars or writing a novel or any other myriad of such
activities.

Finally, JG inherently
sidesteps the issue of inequality. Excessive inequality is one of the core
problems facing our society. JG entrenches inequality in a system where some
people have ‘good’ jobs that pay much more than the compensation earned by the less
fortunate workers stuck in the JG positions. The trick is that the higher one
sets the minimum bar of wages, the more employment then shifts from the private
sector to the government. It is a dynamic variable, not a static constant. It’s
not just the 10 million people who are unemployed.

80 million workers make
less than $30,000 a year(!). Does MMT really propose that the government hire
that many people? How about the 100 million workers who earn less than $40,000?
And what about the other 90 million adult Americans who aren’t in the labor
force at all? Why not just increase the minimum wage and taxes on the wealthy
instead of all the effort involved in being an employer of last resort?

The government's own data shows quite clearly that some workers make far more than even $40K a year. The 'mean annualized wages' for an economics professor is $100K! Health profs make $106K. For legal profs, it's $122K. These are massive wage differentials amongst workers whose jobs are based upon government policy, not private sector employment.

That doesn’t mean that
critiques of how and what the JG accomplishes are necessarily right. But it
certainly demonstrates that JG proponents must defend it on these grounds if they
wish for those of a different perspective to take the JG seriously.

If the above discussion
is too heady or vague for your taste, then let’s turn our attention to
practical concerns. I will characterize these in two ways – first, concern
about the efficiency of the price anchor, and second, concern about the
projects a JG would pursue.

I fundamentally reject point 1 above, the MMT notion that a system of political economy must choose some sort of
buffer stock to serve as a price anchor for the state’s currency. Quite simply,
I would suggest that price anchors don’t work. Thus, they are irrelevant. Whether
it’s hard money like gold, silver, copper, iron, wheat, corn, or some other
physical commodity, or fixed foreign exchange rates, or unemployment, or full
employment, there is simply no theoretical or historical record of price
anchors actually preventing a political system from spending whatever currency
units it desires. After all, that’s the point of fiat currency – issuance is
dictated by the government. This is what makes freely floating exchange rates
so valuable! What matters is not the price of resources. Rather, what matters
is the distribution of those resources. In other words, inflation is managed by
the denominator (the productive wealth of society) not the numerator (the
currency supply). Taxation, rule of law, floating exchange rates, in short, the checks and balances of Constitutional government, is what serves as the 'buffer stock'. That these are external constraints to the monetary system is a feature, not a bug.

But for the sake of
argument, let’s say that you do have to choose some specific mechanism to
buffer currency issuance. Once we actually analyze government employment, it
becomes painfully obvious that direct employment is a very inefficient
mechanism for handling money.

The Social Security
Administration employs about 65,000 people. In contrast, the National Security
State employs about 4 million people (exact numbers here are of course
difficult since the thing is so big and secretive that no one knows exactly how
big and secretive it is). Why compare two parts of the government that have
such wildly different employment levels? Because they spend almost the same number
of dollars into the economy.

Think about that for a
second.

The OASI and DI trust funds
of the Social Security Act together accounted for about $823 billion in
spending last year. The actual direct costs of the National Security State
(discretionary security plus war on terror) were about $811 billion in 2012.
That’s a remarkably similar amount of monetary impact for two very different
employment levels.

In other words, each
Social Security employee generated about $12 million of “monetary work”. A
National Security State employee, however, only generated about $200,000! To
say that differently, one social insurance employee generated the same price
anchor effect of 60 direct employees. If we truly want a system with an
effective price anchor, social insurance is the way to go. Benefit payments are
much easier to tweak than employment levels.

But the problems with the
National Security State are not confined to it being an inefficient spender of
dollars (ha, think about that one for a second!). There are a whole range of
indirect costs incurred by the National Security State that do not happen with
social insurance that I will cover below in the third part about politics. But
before getting to that, the other practical problem is how many more projects
of the same size we will have to create and manage. This gives us a handy unit
of measure in our ballpark estimate: 4 million jobs = 1 NSS.

So in order to implement
JG, we would have to create 5 new projects of the size of the National Security
State if 20 million people signed up. If 40 million people signed up, we’d have
to create 10 new projects. If 80 million people signed up, that would be 20
NSS! Our system has trouble managing 1 NSS project. How exactly could it manage
even 2 or 3 of them, let alone 5 or 10? Those details are critically important
to any serious policy proposal that the government guarantee a job to everyone
who wants one.

Lastly, we come to the
political problem with JG. Quite simply, JG is untested. Sure, there have been
specific instances where the government has hired a bunch of people. But such
systems have never been guaranteed employment, they have never been local employment, and they have never been
permanent employment.

This is perhaps the
biggest elephant in the room when MMT discusses government employment projects.
These projects are only successful when the political process desires to use
workers to invest in the public commons, to produce an output that increases
the productive wealth of the nation. When the political process has other
motives, then we see the terrible consequences that manifest themselves, from
waste and corruption to environmental destruction to sexual harassment and
discrimination to prisoner abuse to undermining of Constitutional rights. The extreme growth of the National Security State poses a direct threat to the Republic. Constitutional
governance is withering away, especially in the “post-9/11” era. MMT assumes
good political stewardship when it is precisely a political crisis that
confronts us.

In short, we have a
management problem, not a monetary problem. That’s the sound bite version for
what is currently lacking with MMT analysis – it is a set of policy
prescriptions chasing the wrong problem. The solution is not to further entrench the employer-based monopoly on living a comfortable and meaningful life. The employment monopoly itself is part of the problem.

7/14/2012

stone savages

We checked out Oliver Stone's new movie. It reminds me how raw the drug war is for me. For some people, it's child abuse, others clean water, others the rainforest. My thing is the drug war. Who knows what makes us drawn to our particular pet causes. A form of specialization of labor, so to speak.

That powerful men can so mercilessly implement such terrible policy is nothing short of sociopathy. That we have so aggressively prosecuted this war will confuse future generations just as much as we are confused about how racial and gender equality could be anything other than obvious.

6/20/2012

microsoft's challenge

I refer, obviously, to
the Surface, Microsoft’s vision of the future that was released yesterday. No,
wait, in 2008. And it’s not so much released as it’s teased.

Microsoft deserves all of
the sarcastic comments that can be thrown at it. They’ve been working on the
basic current tablet form for over a decade, and in the meantime, Apple’s angle
from the old Newton line not only came to market first, but the iPhone
reconfigured the entire cell phone industry, and the iPad actually exists, now,
in the present. For sale. By the time the Mac had been out for five years in the 1980s, Microsoft was already out with version 2 of Windows.

I’ve been working on a long
piece ever since I started chewing on the whole Windows RT is called Windows
but doesn’t-run-Windows-software-except-when-it-does strategy announcement. The
reason is that for all the poking-fun to be had here, I think Microsoft really
is moving forward with an innovative approach trying to transition to the next stage of computing, in stark contrast to most other companies (and most other
industries, for that matter).

The short of the story is
that the initial personal computing paradigm that developed in the late 1970s
and early 1980s was a time of vibrant innovation and competition. What’s so
remarkable about the business of the computer industry is that virtually every
company died. Apple and Microsoft are basically the only two major companies that
survived with any meaningful level of influence, and one way of understanding
that survival is that they both were able to transition from an initial
successful product to a second, improved product.

Same end result, but they
got there in very different ways. Apple reinvested earnings from the Apple line
of computers into the Macintosh line of computers. Microsoft leveraged its
market power in MS-DOS to transfer market power to Windows.

Apple’s strategy is
repeatable: a company can continually improve the customer experience over a
very long period of time, if that is the focus of the company from the top down.
Indeed, that’s what a market-based system of political economy is supposed to
provide.

However, Microsoft was
dependent upon a unique set of circumstances, a perfect alignment of the stars.
Odds are that the legal, business, and technological environment of the 1980s
will never appear again. Microsoft, unique among all of the tech companies,
didn’t make ‘computers’ – they only made the operating system. It was IBM’s
brand in corporate America, not anything technological in MS-DOS, that gave
Microsoft market power. It’s also important not to forget Intel in the story,
since the 1990s were really a Wintel duopoly more than a Windows monopoly. For three decades,
Microsoft has sold MS-DOS and then Windows not to consumers, but to
manufacturers, because being compatible with the IBM standard was paramount.

Today, IBM no longer even
makes personal computers, and corporate buying represents a smaller overall
share of computing purchases. Accessing networks (such as the internet, wi-fi,
and cellular communications) and providing mobile form factors are the primary
tasks assigned to an increasing number of devices. There are also a much
greater number of users who have made their mobile computing choices today than
had made their personal computing choices a quarter century ago. Microsoft’s
challenge is how to make the next transition, how to be relevant in the mobile computing paradigm and beyond (assuming, of course, it wants to do that).

Does it try to leverage
the market power of Windows to sell manufacturers on the next product, or does
it try to make a device itself that will appeal directly to consumers? Both
strategies are interesting, and personally, I think Microsoft could execute
either one reasonably well. What I think is critically important to understand
is that these strategies are completely incompatible with one another, and
there are tradeoffs between them. I wonder if Microsoft’s senior executives
understand that, or if they have actually drunk the Kool-Aid and think they can
simply muscle into mobile touch-based devices the same way they transitioned to
the mouse and desktop. In other words, would Microsoft accept being a top five
manufacturer of mobile computing devices? Or would they rather bet the company
trying to reclaim the glory years of the 1990s?

As a long-time Apple
user, I do enjoy the delicious irony that Microsoft management has appeared
increasingly trapped over the past few years by the very success of that silly
toy of a user interface.

6/05/2012

back to where it started

(P) One of the reasons I did not support then Senator Obama in the Democratic primaries was his embrace of the Establishment way of thinking with regard to using American power to force sovereign nations to obey edicts from Washington. This kind of power projection not only makes us less safe as it incentivizes the very foes we are supposedly fighting to oppose us more directly, but moreover, it undermines our position of leadership by wounding the most important levers of our credibility. The true greatness of the American century was in our persuasion of nations to voluntarily join us, aligning economic, legal, environment, and human rights policies with our own, sometimes literally rebuilding countries in our own image.

In particular, the Senator spelled out his obeisance in a Foreign Affairs article in the summer of 2007. [Unfortunately, it is behind a paywall - funny that you have to pay for the privilege of accessing Conventional Wisdom. It's like they don't really want you to know what the DC crowd are thinking. But you can go to your local Elite University and find publications like Foreign Affairs easily enough, assuming the University Police don't taze you out of the library first.]

While broadly embracing that fun phrase The American Way of War (such as, for example, never actually using that little three letter word), Obama's article singled out one country in particular for action - Iran.

Five years later, we basically have confirmation that President Obama personally authorized war against Iran. Specifically, he instructed the development and release of a malicious computer program that targeted uranium enrichment equipment in the country. This worm, Stuxnet*, accidentally became public a few years ago - apparently the Obama Administration originally thought they could do this and keep it secret forever - and so the guess was that the Israelis and/or Americans were involved. This weekend, the Corporate Media paid homage to what Glenn Greenwald brilliantly calls Obama the Warrior as that guess became more like a sure thing.

So here we are. We can have legitimate policy disputes about the drug war or financial bailouts or warrantless spying or Race to the Top or many of the other Administration policies that I adamantly oppose. But we now have The Paper of Record openly explaining that the President of the United States committed an act of war against a sovereign country. How can anyone who opposed the major policies of the Bush Administration support the reelection of President Obama? How about anyone who believes in basic principles like the Constitution or national sovereignty?

That's going to be a sticky line of thought the next few months.

* Incidentally, Stuxnet in particular demonstrates the law of unintended consequences and how this type of behavior is a direct threat to our national security. Of course there are going to be computer programming errors in a project that complex. That's how this stuff works. Furthermore, Stuxnet is an extremely dangerous worm because it actually destroys the hardware it operates. That hardware isn't some Iranian bomb - it's equipment manufactured by Siemens that is used all over the world for producing nuclear power. We have now proven to every foreign government, organized crime operation, and terrorist group the possibility and effectiveness of damaging control equipment. It's a good thing our own country doesn't depend on any computer systems to keep our infrastructure running!

5/17/2012

this is pretty funny

2/28/2012

tech punditry and investment advice

I am obviously not a daily reader of MG Siegler's ParisLemon as I am commenting on something that was posted last week, which in mobile years might as well be last century. Anyway, the particular post is nerdspasm worthy - if you just so happen to be into both tech and finance.

Conveniently, I am.

Siegler links to Chris Dixon posting Warren Buffett's annual shareholder letter as CEO of Berkshire Hathaway (more specifically, the parts that are purposefully released PR-style for public consumption; the full letter is more detailed). Siegler's commentary reads (mostly)

Ask anyone why gold is so valuable and they’ll immediately tell you that it’s a rare commodity. And that’s true. But beyond its decorative value, which is minimal at best, what value does it actually produce? Very little.

Well, very little beyond selling it to the next fool who will pay more for it.

I don't know whether Siegler is casually interested or follows this more closely, but Buffett's letters are always fun fodder for the investment world and in particular the 2011 letter is quite remarkable. Indeed, this letter is darn near infamous.

First, Buffett yet again exemplifies that being a billionaire does not cause stupidity; it really is possible to be rich and maintain some touch with reality. Specifically, he acknowledges in the letter that he was wrong on housing finding a bottom. Contrast that kind of directness with how Manhattan financial firms operate, like Goldman Sachs Chief Financial Officer David Viniar giving his incoherent explanation of 25 standard deviation moves. Actually, don't contrast them. It will just make you cry (whether over math or the failing of our institutions, is in your hands). It's not that Buffett is always right, but that he puts his thoughts out there.

Second, Buffett has thrown himself in the midst of what has to be one of the greatest not-really-that-important controversies in the history of the internet. Except that if it's not important, why mention it?

And therein lies the rub. Warren Buffett is in the business of profiting off of information asymmetries. He wants to buy undervalued shares and sell overvalued shares. Warren Buffett, in other words, practices the art of the greater fool theory. He believes that fools exist at both ends, in fact! People dumb enough to sell him shares at below real value and people dumb enough to buy shares at higher than real value.

Once you see that Buffett is talking his book, in fact specifically referencing holdings like Coke and See's, the particular commentary on gold becomes even more fascinating. He needs people to put their money in financial assets because that's where he has leverage - political access, business contacts, legal resources, etc. Precious metals are a huge threat to that power base, not because they realize a return, but because they're not in the business of generating returns. Investing is incredibly risky. Saving is an entirely different endeavor - the whole point is to transport today's capital in a form accepted tomorrow, not to generate additional capital tomorrow. There are basically three types of precious metals investors: 1) conspiracy theorists/doomsday preppers, 2) savers, and 3) speculators. Note that while we colloquially use the word investing to describe this, none of these three types of activities are actually investing in the financial sense of the word. What's really dangerous is when people end up investing when they think that they are saving*.

(I of course do not give official financial advice, legal advice, tax advice, marriage advice, cooking advice...but personally, I am a big believer in investing in stocks. That is in no way inconsistent in also believing in saving in much safer vehicles that have nothing to do with equities, nor is it inconsistent with also believing in the value of diversity over concentration.)

It's the relationship between value and price that determines whether 'something' is a good investment or not. The utility of that something for some other purpose is irrelevant*. After all, if Buffett was simply a buy and hold forever investor, how come he sold all that Exxon Mobil stock he's so interested in talking about? If he is so focused on productive assets, why does he invest in companies that are so unproductive that they require government bailouts just to stay afloat?

So Siegler, if you really think gold has minimal decorative value, why is it so valued in jewelry? It rivals diamonds in popularity and global ubiquity even though the gold market lacks the monopoly equivalent of De Beers backing it.

And I would love to know where I can get a list of the companies that are going to be productive over the next decade. If this was known, if there were no risk, it wouldn't be investing. But perhaps most plainly, the greater fools theory simply doesn't make sense. If you bought something, that means you're the fool. The natural conclusion of this advice is to steer clear of the entire (secondary) equities markets.

Michael Dell went into the investment advice business in such a famous way that he singlehandedly demonstrated the importance of knowing when people are talking their books. If someone had shorted Apple and gone long Dell a decade and a half ago, they'd be bankrupt today. In fact, they would have gone bankrupt years ago.

*Note, there are huge incentives to confuse people about this, and not just in stocks and precious metals. The housing bubble was encouraged in no small part by the National Association of Realtors and the Federal Reserve pushing people to think of housing - something of value due to its utility as shelter - as somehow synonymous with the returns of investing and the safety of saving.

2/13/2012

small potatoes

This post attempts to organize some thoughts regarding where we are headed. It's fun when there is a clear vision, but perhaps the most important times for reflection are when things are muddier. Basically, if we can identify unsustainable trends, we can identify sources of change. While the catch is anticipating what exactly that change will be, having some semblance of the terrain is useful.

One of the analytical approaches that interests me is where the tendency toward optimism/pessimism intersects awareness of reality vs. fiction. There is a lot of emphasis in our culture on the first dimension, almost as if being optimistic is more important than being right. Visually, it puts the emphasis like this, on the vertical columns.

However, an attempt to rationally understand the world around us needs to compensate for that natural cognitive fallibility by emphasizing the horizontal.

Truth requires an ability to interpret events both optimistically and pessimistically, to have a vision of what could be yet also a sense of what might go wrong.

With a couple decades of general wage stagnation providing the context for several years of very specific economic hardship and dislocation, the strategy of the governing coalition of interests in the US appears both clear and consistent. Outside of the national security nexus (GWOT, drug war, deportation, etc.) neither the Bush nor Obama Administrations are particularly hostile toward or directly targeting 'average' Americans. The 'not Hitler' meme was one of the better ones that Jon Stewart and Stephen Colbert encouraged at the Rally to Restore Sanity and/or Fear. Metal Chris captured this one:

In other words, it is not so much that individual political leaders act maliciously toward the citizenry so much as they don't care about us. Apathy is the key descriptor; we are simply irrelevant. All of the energy in government is devoted to marshaling whatever resources are necessary to save the Big Fish. What we are left with is the crumbs; small potatoes, so to speak. You can almost see the political class psyching themselves up to sell the latest batch of small potatoes for the masses as something of remotely similar importance to the efforts to save the Masters of the Universe. The transparency that Vice President Biden accidentally showed at the health care press conference, for example, revealed so much.

It's not that Bush's Medicare 'Modernization' or Obama's HCR 'most important reform since FDR nevermind that Medicare thingy in the 60s' are Terrible Legislation that will Destroy America. It's not that Bush was an Idiot or Obama is a Kenyan Muslim Fascist. It's not that abortion and gay rights renders America ungovernable and/or on a path of moral decay and damnation.

Rather, that's not where the action is. Two successive presidents, from two different parties, pushed massively complicated bills that purported to make the healthcare system significantly better. Yet they didn't actually solve the problem of expensive healthcare that causes preventable deaths.

I learned to hone in on that tactic of over-selling and under-delivering as a teenager, and it has proven to be one of the most insightful observations in comparing words and deeds. It's the 'let your yes be yes and no be no' philosophy: either government should do something (such as guarantee quality healthcare for all citizens) or it shouldn't. Both are legitimate beliefs. So is I don't know/let me think about it/it's not important to me. But to pick bits and pieces from both is to give away that neither belief is sincerely held; rather, they are merely justifications for acting upon an unrelated set of beliefs (like the belief that government should protect the economic interests of the wealthy).

Clarity has been particularly revealed with the financial crisis because we now have so much data upon which to draw. It's a simple statement of fact to observe that the Obama Administration supports the use of law enforcement resources to arrest hundreds of thousands of people every year, from illegal drug users to illegal residents to illegal assemblers. Yet one specific group of criminals stand in stark contrast to this massive deployment of police and prisons: politically connected financial crooks. There are literally more baseball players in legal trouble for testimony given before Congress related to steroid usage than there are top corporate executives and board members in legal trouble for all financial crimes combined. The current Secretary of the Treasury was literally head of the New York Federal Reserve when the proverbial bile was impacting the proverbial turbine. The ongoing effort to enter into a mortgage settlement is designed to give the Too Big To Fail financial firms immunity from liability in court - that's the point, that's what a settlement is - a settling of claims of unlawful behavior outside of court.

The preceding paragraph is neither pessimistic nor partisan. It's simply recognizing where we are at. The past and current Presidents of the United States think cocaine users, whistleblowers, protesters, and immigrants should be treated like murderers while financial fraudsters should be treated like people who don't pay a parking meter.

This is beyond specific policy debates or even broad ideological contests. We are now in the realm of questioning, of bringing to light, the core foundations of the American experiment, in all of its grandiose, exciting, and dangerous forms.

Is the Constitution the foundational pillar of secular governance, or do we now look to something else? Is there a rule of law, or a rule by men? Do we want to participate in a peaceful world order, or do we want to instill an American world order? Our basic systems of property and finance and law are quite literally crumbling around us. It's not pessimistic to point this out, to consider the implications. It's responsible.

We know housing prices got out of control. We know higher education costs got out of control. We know healthcare costs got out of control. If actual solutions to these kinds of problems are not going to be forthcoming, that is important to know, to understand what it really means. If you're a Big Fish, you play things very differently, but for areas of American life that depend upon the broad 'middle class', there are only two outcomes. Either public policy ultimately changes and we start encouraging wage growth again (either directly through employment policies or indirectly through additional transfer payments like universal unemployment insurance), or the asset classes dependent upon wages will simply wither away.

This has to happen*.

Either $20,000 - $30,000 a year has to become what it is elsewhere in the world - a comfortable living - or millennials in aggregate looking for jobs have to have a way to earn much more than that in entry level positions. Xers have to have broadly accessible means of earning promotions and switching careers. Baby boomers need to be able to easily replace lost jobs and find part-time income in retirement.

We have utilized credit to bring forward as much consumption as possible. The distant future is finite, too. And the near-future was spent in the past.

Household formation has slowed. New home sales are at record low levels. Record numbers of Americans do not participate in the healthcare system. The percentage of Americans employed has dropped precipitously. Millennials are even ditching things like cable and phones. Student loans - financial commitments undertaken by minors deemed incompetent to buy a Bud Light - can't be discharged in bankruptcy, ever.

Any asset that depends upon middle class wages, any industry that sells to those last marginal dollars of disposable income, will simply shrivel up to a much smaller core.

That's what I don't follow about some of the more intense hyperinflation perspectives. Massive increases in broad pricing measures ultimately requires the government to get money into the pockets of 'normal' people somehow. But that's not the bailout mechanism this time around. The most well connected players are seeing such socialism, but the general citizenry confronts a dearth of capital. I wonder if our 'capitalist' system can handle such misallocation of resources on such a grand scale.

But what I don't wonder is that it is a misallocation. Undermining the rule of law causes many more problems than it solves.

*It is becoming increasingly difficult to get simple, accurate information. The Consumer Price Index, for example, is so watered down and altered that it's not even clear why it's a good measure. A KC strip steak from grass fed open range cattle simply is not substitutable with a breast from a tightly caged, anti-biotically stuffed, corn-fed melange of chickens. Our political process helpfully focuses attention on the relatively small amount of trinkets from places like China and India when the bulk of American household expenses go to much more mundane domestic sources like housing, healthcare, higher education, food, transportation, and so forth. I keep anal financial records, so I thought it interesting to look at a few specific items of my own. By my various calculations, I had a stretch of rental increases that amount to an annualized rate of 4.8%, tuition and fees at Wash U increased by 5%, the cost of an entry level car increased 6%, health insurance increased 12.6%, and food increased 14.7%. The drawback of course is that by being specific, it's unique to me and just anecdotal. But comparing that against the average annual increase in household income over the past decade - 1.6% - it's obvious to see something has to give.

2/02/2012

small frauds and big ones

It's always fascinating which little ripple ends up making the big wave. Well, at least to weirdoes like me who are into organizational strategy.

At any rate, Susan G. Komen for the Cure is offering a front row seat to PR disaster this week. You see, they have the perfect niche. They make hundreds of millions of dollars a year, and there is very little probing of what exactly they do with all this money. Now some people who had no idea that the head of Komen is associated with the Bush Administration* will know that, will think of the organization in a political light. Now, some people who had no idea that an organization with 'for the Cure' in its very name doesn't actually do that much to find a cure will run across discussions of the budget and finances of the organization. Now, the bland, corporatey, nonpartisan branding niche Komen has so carefully crafted for itself over the years has been shattered. Now, a wide variety of people will be exposed to the difference between the talk of groups like Komen and the action of groups like Planned Parenthood. Now, corporate partners of Komen will hear negative feedback as well as positive regarding their financial involvement.

Personally, I'm on the Barbara Ehrenreich end of the pink spectrum, so, I don't particularly care what happens to the national fundraising ability of Komen. And there is some good commentary out there about the marketing angle in particular. I would highlight Dan York and Kivi Levroux Miller for Internet Posterity on this one. Perhaps the best illustration of how the story is out of Komen's control is when I googled Komen. The organization's website didn't even show up in the first page of the search results!

The particular perspective I would add to this commentary is to place this in the context of our collapsing paradigm of vanishing trust in all types of institutions. Know whether you're a big fish or a small fish. The Really Big Frauds are Too Big To Fail. They steal billions and no one says a peep because the government itself is guaranteeing their business model. But if you're a smaller niche, an organization that depends at some level on legitimacy among the general public, don't push your luck. Komen had it all - liberal women and corporate women (maybe corporate personhood debates can shed new light on gender identity?) Donating in Harmony. Did they really think adding a third party - rightwing prolifers - wouldn't upset the apple cart?

Who planned that strategy? Or perhaps more damaging, who didn't plan a strategy to deal with this?

*P.S. Wow, I didn't know Brinker (Komen's CEO) was actually a Pioneer for Bush. Check it out, she even has a profile page with Texans for Public Justice.

P.P.S. Is Komen really inflicting a double booboo on itself, in strict business jargon? Everybody knows coverups tend to cause worse problems than the underlying issue. If Jeffrey Goldberg is remotely close to any semblance of truth in his Atlantic article, then Komen is directly and plainly lying to people about its decision-making process. That can't end well; that's what makes these things drag on far longer.